401(k) & 403(b) Plans: Everything You Need to Know

Salvatore Pitti, CFP®, CRPS™, AIF® and Matthew Pitti, AIF® |

If you’re anything like the clients we work with, you’re curious about the types of retirement plans that may be available to you. You know that when it comes to crafting your retirement plan, it’s about more than just the numbers. But there are a couple of numbers in particular that have captured your interest: 401(k) and 403(b). 

Curious about how a 401(k) or 403(b) plan can contribute to your retirement strategy? You’re not alone. Even if you’ve been researching retirement strategies for years, there may still be intricacies of these common retirement plans that may surprise you. 

So, let’s take a deeper look at these two common retirement plans, so you can make the most of these options to set yourself up for your dream retirement. 

What Are 401(k) and 403(b) Plans?

If you are employed by a for-profit, private-sector company, you likely have an employer-sponsored 401(k) plan. If you are employed by a non-profit company, church, or certain government agencies, including public schools, it’s likely you have a 403(b) retirement account

Both 401(k) and 403(b) plans are tax-advantaged. This means that depending on the type of plan you have, your plan is either tax-deferred or exempt from taxation.

If you have a traditional 401(k) or a 403(b), your contributions are taken with pre-tax dollars. In other words, your money is placed in your 401(k) or 403(b) now, and you pay taxes when you are ready to withdraw money in retirement. This is known as a tax-deferred account. 

Even still, some plans also offer a Roth option which has slightly different—but equally important—benefits, which I’ll cover in a moment.   

What Are the Benefits?

Both 401(k) and 403(b) plans have plenty of benefits that can enhance your retirement outcomes—if you take advantage of them.

Perhaps the biggest is company matching, which is when your employer matches your contributions up to a certain percentage of your paycheck, provided that you are contributing that same amount or more. Think of it as free money, as long as you meet vesting requirements. However, not all employers offer this benefit. 

What’s more, these plans have certain tax advantages, which make them very appealing. Imagine saving up to 37% or more in state and federal taxes on the amount you contribute plus deferring taxes until you’re ready to withdraw in retirement. This is because the pre-tax contributions you make to either of these accounts grow tax-free until withdrawn and are funded with pre-tax income, which could amount to massive tax savings. 

As I mentioned before, 401(k) and 403(b) plans often offer a Roth option. Contributions to a Roth account are made using after-tax dollars instead of pre-tax like a traditional retirement plan. However, unlike a traditional retirement plan, your account grows not only tax-deferred but your future withdrawals are tax-free.

The Secret to Automating Your Retirement Savings

If you are someone who welcomes some built-in discipline in the area of money, you’ll appreciate the automatic savings that are integral to 401(k) and 403(b) retirement plans. You can opt-in to automatic payroll deductions, so you consistently fund your retirement with little effort on your part. 

These funds typically use low-cost investments, which make them even more valuable over time. Also, 401(k) and 403(b) funds harness the magical power of compounding; the earlier you start contributing, typically the more money you’ll end up with when retirement begins. 

However, if you have not kept up with your annual contributions or have had a serious financial crisis along the way, you can make catch-up contributions once you’re over age 50. These funds also offer the option of taking loans and hardship withdrawals in some situations. 

Unlike with an IRA (individual retirement account), there are no income limitations on contributions to 401(k) and 403(b) plans. When you change employers, you can usually roll over the money into a new plan or IRA. In fact, the money is yours—be sure to keep it with you as you move along your career path. 

These retirement plans help give you the confidence of being in control of your financial future. You are building a resource well that can last as long as you need it. But what if you’re still not sure how to handle either of these plans?

We Can Help You Explore Your Options

Retirement accounts are the foundation of a solid retirement plan, but you don’t have to know all the intricacies of your plan. Working with a financial advisor can help you manage your 401(k) or 403(b) in the most prudent way. Contact us at The Pitti Group to see how we can help you explore your retirement plan options. 

To schedule a meeting, call (585) 337- 4000 or email s.pitti@thepittigroup.com / m.pitti@thepittigroup.com.

About Sal

Sal Pitti is president and financial advisor at The Pitti Group Wealth Management, a boutique financial services firm with a deep breadth of capabilities and resources to help corporations, retirees, nonprofits, high-net-worth individuals, and professionals pursue their financial goals. The firm focuses on various aspects of investment planning and investment management; with over 25 years of experience in the financial services business, Sal loves seeing the end result after years of planning and the joy it brings to clients. He prides himself on providing a tight-knit, family-oriented team that truly gets to know clients. Always accessible, they’re continuously learning how to bring added value to clients.

After 22 years working for a large brokerage firm, Sal and his son, Matt, felt that the firm’s goals didn’t align with theirs and their clients, so they decided to become independent advisors and founded The Pitti Group Wealth Management in 2016. Sal is a CERTIFIED FINANCIAL PLANNER™ practitioner, Chartered Retirement Plans Specialist™, an Accredited Investment Fiduciary®, a graduate of the University of Maryland, Cum Laude, and holds a master’s degree in business management. He served in the United States Air Force working in the intelligence field, during which time he lived in and spent time in many countries, receiving numerous honors and awards during his tours. He has completed the Senior Financial Advisor program from the University of Pennsylvania, Wharton School, and also holds licenses for securities, insurance, and long-term care. Sal resides in Canandaigua and is very active in his community. He enjoys golfing, traveling, visiting beaches, spending time with family, and is an avid outdoorsman. To learn more about Sal, connect with him on LinkedIn.

About Matt

Matt Pitti is Senior Vice President and Wealth Advisor at The Pitti Group Wealth Management, a boutique financial services firm with a deep breadth of capabilities and resources to help corporations, retirees, nonprofits, high-net-worth individuals, and professionals pursue their financial goals. Matt has worked in the financial services industry for 20 years, and as an Accredited Investment Fiduciary® designee, his main priority is to place clients’ interests ahead of his own. He takes time to develop a detailed and customized wealth planning strategy to not only fit their needs today but help get them where they want to be in the future. His holistic approach encompasses many facets of financial planning to make sure their plan is the best solution for them. Matt also works as the advisor of several 401(k) plans to support plan sponsors, address their fiduciary responsibilities, as well as guide the employees in building individualized retirement plans.

After 10 years as an Associate Vice President at Morgan Stanley, Matt, his father, and staff founded The Pitti Group Wealth Management in 2016. Matt holds a degree in economics from the State University of New York at Cortland. In addition to his AIF® designation, he holds the Series 7, 31, and 66 certifications and a Life, Accident & Health insurance license. Residing in Penfield with his wife and two children, Matt proudly spends his free time watching his daughter’s dance competitions and his son’s travel baseball games. He also enjoys playing soccer, golfing, paddle, and is an avid outdoorsman. To learn more about Matt, connect with him on LinkedIn.